Two prominent Indonesian lawmakers have hit out at ‘black campaigns’ against palm oil underway in the European Union in Indonesian parliament last week.
The comments come at a time when trade negotiations between Brussels and Jakarta appear to have hit an impasse, and just as the UK is opening up communications with Indonesia over palm oil, legality and sustainability.
Hasan Aminuddin and Luluk Nur Hamidah, both of Commission IV – a house committee that oversees agriculture and food production – stated that the campaigns are aggressive and targeted.
“European countries, which are export destinations, are doing this. Yes, there are indeed economic interests that are deliberately designed with environmental issues in mind.”
Representative Luluk also stated that “There are underhanded tactics that the international competitors use. Because they can’t compete with our palm oil production, they raise issues that are actually not fair, ways of trading that are not fair.”
Both were clearly referring to the many tariff and non-tariff barriers that the EU has put in place against palm oil and palm-based products, and subsequent WTO challenges.
The UK’s appears to be trying to avoid following the path laid down by Brussels.
Correspondence around the UK’s new due diligence proposal – which we discussed in detail last week – indicates that both parties are seeking to find common ground on the issue, with the UK making reference to legality standards, and the Indonesian Government pushing compliance with ISPO.
Following the banning of palm from the EU Renewable Energy Directive, EU lawmakers and NGOs appear to be pushing for tougher, EU-oriented policies that would seek to exclude palm oil on a unilateral definition of sustainability, regardless on the impact on Indonesian livelihoods.
Both Indonesian MPs noted that the industry makes an extraordinary contribution to Indonesian livelihoods, particularly in rural areas. “There must be empowerment of farmers, especially palm oil farmers… We also encourage the government to counter the issue … [and] make a counter campaign that there are many benefits of palm oil.”
Unilever to switch from fossil fuels to palm oil
Unilever has declared that it has had a ‘diesel moment’ in relation to its cleaning and chemical products, and is seeking so move away from fossil fuel-based chemicals and use palm-based products as part of the transition.
The declaration occurred around the same time Unilever announced a new traceability system for palm oil. The traceability system is advanced; it uses a combination of satellite data and anonymised cellphone data to track the so-called ‘first mile’ between plantations and mills. This is significant; what most consumers and consumer groups don’t understand is how fragmented palm oil supply chains often are given that many smallholders are working areas of 10ha or less.
But there are three key aspects to Unilever’s announcements that are worth exploring in more detail.
The first is that it has become plain to anyone observing the FMCG (Fast Moving Consumer Goods) market that Unilever is not going to drop palm oil. For the company to invest this heavily in its supply chain for a traceability scheme that goes almost beyond risk management to near real-time observation of the supply chain is unlike anything else the commodities industry has seen, with the possible exception of advanced supply chains for food safety, particularly meat processing.
The second aspect, and related to the above, is that palm oil utilisation is not just important as an ingredient, but is also key to Unilever’s sustainability strategy more broadly. As noted above, last week a number of publications reported on Unilever’s ‘diesel moment’ in relation to its non-food household products such as detergents and cleaning products.
Peter ter Kulve, head of the company’s cleaning product unit stated it is about to spend EUR1 billion on removing fossil-fuel based chemicals from its supply chain. One of the key ingredients for its replacement is palm oil, which Unilever estimates can reduce its greenhouse gas emissions by 20 per cent.
Third is that it was essentially the private sector that has come up with a solution to the concerns and false accusations from NGOs, Western governments and competing oil producers that have plagued the palm oil industry for more than a decade. The question is whether NGOs will accept Unilever’s new technology system. When Nestle announced the Starling traceability system in 2018 Greenpeace attempted to shoot it down immediately. What we’re yet to see is anything from competing oils such as soybean that approaches the sustainability standards – and now technology – being deployed by the palm oil industry.
EU-Mercosur Delays: What it Means for Palm Oil
It’s arguably the worst-kept secret in Brussels that disagreements over vegetable oils – i.e. palm oil – are holding up the long-awaited free trade agreement between Indonesia and the European Union. Combined with this is the appointment of a ‘Trade Enforcement Officer’ in Brussels that will effectively act as the ‘globo-cop’, pushing the EU’s FTA partners to enforce environmental and other TSD elements of trade deals.
But it also appears that the EU’s approach is now holding up the bloc’s agreement with Mercosur. Uruguayan President Luis Lacalle Pou stated “Environmental and procedural issues [aside from the pandemic] remain to be resolved.” Brazil’s Vice President Hamilton Mourão has gone so far as to blame ‘uncompetitive’ European farmers for holding up the deal.
The comments are yet another indicator that the progress towards sealing the much-touted deal have slowed. Germany has expressed reservations specifically over concerns around deforestation. France, Austria and the Netherlands in particular have expressed reservations regarding Brazil’s current environmental policies. There was also a public protest in Brussels last week – albeit poorly attended – against the signing of the agreement.
This opposition has gradually been growing since the completion of the bulk of the negotiations last year. Agriculture Commissioner Wojciechowski stated that the EU should be importing less soybeans for animal feed. Argentina’s soy-based biodiesel has come under the same treatment in antidumping cases as Indonesia’s palm biofuels. This is very familiar territory for palm oil exporters and processors exporting to Europe.
So, what does this mean for the Indonesia-EU deal?
In short, Indonesia should expect similar treatment at the hands of European NGOs and parliamentarians if or when the deal is completed and an announcement is made. But the action also puts a greater onus back on European negotiators in terms of their reliability: what is the point of negotiating and making concessions to Europe over market access if all of that hard work will be undone by protestors and protectionist legislatures?
Both of these agreements symbolise Europe’s trade ambitions in both Latin America and Southeast Asia. If they are unable to get these deals over the line, those ambitions will be put on ice for some time. Palm oil is Southeast Asia’s largest agricultural export; placing additional burdens on it is likely to be non-negotiable for the ASEAN bloc, as Indonesia and Malaysia have recently shown. The situation is further complicated by the resignation of Trade Commissioner Phil Hogan, who was seen by some as a champion of open trade. European Greens have seen this resignation as a victory, seeking to ‘green up’ trade policy even further. The ball is now in Brussels’ court.